Monday, June 25, 2007

...And I try to argue against the Chicago-school-as-usual line of thinking they offer up:

"However, intentional misleading presentations to families who were clearly unqualified to take on home ownership was not the norm but rather were exceptions."

How do we know that? And, what are defining "norm" as? 20% of cases? 50%? A large majority???

The foreclosure rates keep rising and rising - ie - we haven't even seen how extensive this problem is yet. We just know that it is bad now, and getting worse.

Also, you lump 'congress' into one entity that presumably wants to prevent poor people from home ownership. I don't think I've heard that from anyone - all I've heard is talk about putting some restrictions on the blatant smoothtalking and in some cases all out lying that obviously has been happening --- whether they be 'exceptional' or not.

Thursday, June 21, 2007

The Indianapolis Star reports on a part of the Indiana Budget recently passed into law that would make motorcyclists pay a $10 fee to go to research to prevent spinal / brain injuries. The part of the bill was buried and not even the Governor was aware of it. He says motorcyclists have a right to be upset. And they are.

But interestingly, commenters are comparing this fee to the tax hike on cigarettes also passed in the previous legislative session. To them there are no differences.

To me there is a big difference:

Cigarette users create a substantial social cost via second-hand smoke related health problems, cigarette promotion of to our youth, the smell of cigarettes in our public areas, etc. The tax acts to account for those social costs - to make the smokers pay for the costs not internalized by themselves or the manufacturers.

However, a fee (tax or whatever) on motorcyclists to promote brain/spinal injury research is completely different. Let's just assume that motorcycling is the highest risk category (on a % of use basis) for brain injuries etc. Presumably, the bikers are already internalizing that risk. Presumably bikers that don't wear helmets are more risk-seeking than those that do. Regardless, head injuries etc are costs that apply mostly directly to the motorcyclists and their families (financial and psychological pain of loved one's death/injury). Externalities are minimal. So really, with a fee on motorcyclists alone, while ignoring all other groups of people where brain/spinal cord injuries might be high (like auto racers), just seems unfair to me.

Tuesday, June 19, 2007

From the piece:"Poor New York City residents will be rewarded for good behaviour - like US$300 for doing well on school tests, $150 for holding a job and $200 for visiting the doctor - under an experimental anti-poverty program city officials detailed Monday. "So it seems that basically, New York will now give incentives to people for "living" - doing things that people should be doing anyway, as part of being human beings.

Holding a job? You shouldn't have to be paid for trying to do good work at work. You shouldn't be paid for not calling your boss names, etc.

Visiting the doctor? Wait. Let me get this straight. Some bloke doesn't care about his health, so I the tax payer should? Oh wait, that's our existing health care system ;)....

But the kicker is "doing well on a school test." So now we have to pay people to study? You know I'm fine for supporting education financially, in fact, IMOP, it should be the largest outlay the government makes. But giving people money for doing what normal people do on an everyday basis is offensive to me. Not only that, but it should be offensive to poor people, because it implies that the only reason they are poor is because they are trying their best not to live normal lives. It further implies that a little bit of cash could change years of ingrained behavior. I'm not so sure - seems like this kind of spending would be the kind of thing people look for loopholes to get around.

Finally, this kind of incentive focuses on the incentive it provides to the poor, but what about the incentive it provides to the middle class.

Consider: "The World Bank model for cash reward programs in other countries is that the value of the incentive should equal about one-third of a household's income to have any lasting influence on changing behaviour. "

Sign me up! I'll gladly become a part-time worker and do all the other 'hard-work' of being a human being in order to get 1/3 of my earned dollars essentially for free!

Friday, June 15, 2007

It was only a matter of time, but the city of Indy has finally formally asked thousands of residential water users in the city to conserve their use and not water their lawns etc.... Just north of us, in the city of Noblesville, there is an enforceable mandate in place banning the use of water for such uses and is punishable by a fine.

It's true we are going through a heck of a dry spell, but I don't see what all the fuss is about. First of all, I pay for my water and I'm going to use it. The water company's failure to plan or add capacity is not my problem, and it is not business of the government sticking it's nose in my business.

Secondly, if people are willing and able to pay for water, then let them. The market won't let the well run dry - it'll just make water expensive. If you think about it, water from your faucet is not really a necessity in the short-run. You need a bath? Jump in the river once a week. You worried about dishes? Use paper plates temporarily. You want clean clothes? Have your drycleaners send them out of state. You thirsty? Buy bottled water.

Now you might say to me, "But I shouldn't have to go to those extremes." My response is, every use of water that you aren't using for thirst (in the short-run) is just a frill, a non-necessity - a need to fulfill a personal aesthetic (to smell good, to have cleaner clothes, etc - all frills) . And thirst (and even some frills) can easily be taken care of by the market with bottled waters from areas that are not experiencing drought.

Having a nicely manicured lawn is also a frill - but it is not necessarily a lesser or greater frill. It's relative importance to overall cleanliness etc is in the eye of the beholder. And how dare the government try to make us choose cleanliness over household aesthetic. If they want to conserve water and be fair about it - they just need to turn off the spigot altogether.

Thursday, June 14, 2007

Mankiw today says the following in response to a report regarding social welfare / utility:

"They believe:1. Tax policy should be set to maximize a social welfare function.2. The social welfare function has strong aversion to inequality.3. The tax-setting social planner must take into account that taxes are distortionary, but elasticities are small enough that the distortions are not much of a problem until tax rates reach much higher levels than we have today.

Note that points 1 and 2 are about political philosophy rather than economics. Economists can have opinions about these matters, but our opinions are not much better or worse by virtue of our training than those of anyone else. One can even reject the whole idea of a social welfare function. ..."

I read that, then shook my head in shamed dissapointment at this expression of how closed-minded Econ is and has been for years. My response:

I don't buy your logic Prof. Mankiw. First of all points 1 and 2 are not at all about a 'political philosophy' - it's about common sense (the field of psychology also has a good deal to say about this). The fact that comprisons of interpersonal utiltiy is not wholly possible in the real world doesn't mean that these differences don't exist - it just means we aren't sophisticated enough yet to measure it well. So we fall back to what we can measure well, despite the fact that pareto efficiency has severe drawbacks (precisely because it ignores equality). I also disagree that we as economists should continue to shrug this stuff off as 'outside our realm.' That's very closed minded thinking and it's the kind of thing we econ nerds get bashed for. Econ at its core is just the study of behavior under constraints and scarcity. It's time we start advocating a more mulidisciplinary approach to economics and stop falling back on useful yet severely limited metrics.

Tuesday, June 12, 2007

"There is no such thing as public investment, only public consumption. This conclusion follows immediately once we clearly recognize the distinctive character of government's economic position within a division-of-labor economic system."

"Instead of carrying around an Austrian model in their heads in which we assume total selfishness, zero transactions costs, and conclude that transfer payments are suspect, they’d be hearing about Possible efficiency gains due to taxes and transfers"

Monday, June 11, 2007

But did I mention it was a politics blog? They are almost always dishonest. I met the author on Saturday of this particular offender who writes the "Taking Down Words" blog - an Indiana politics blog. I'm sure she's a wonderful person, but it's obvious she has no intention of citing things without spinning it to her left-leaning will.

She cites an economist who cites the BEA's recent release of GDP per State, which shows Indiana continuing to trail by a good margin the US average growth rate: "Indiana's GDP grew on average by 4.5% from 1997 to 2006 while the nation advanced by 5.3%. In 2006 the difference was greater: 5.3% for Indiana and 6.3% for the U.S."

That's misleading on a number of levels.

First off, I would've preferred she cite the chain-weighted real GDP measure. With that measure, Indiana's real GDP grew about 2.2% between 1997 and 2006, while the US grew at 3.0%. Ok, the point is taken that Indiana is going through a bad time. The problem is she uses that stat to then say:

"But...but...but...the Guv says we're on a hot streak. He wouldn't fib to us just to cover up for the fact that he has no long-term economic development strategy, would he?"

That's where the political hackery comes in. This can all easily be dismissed when you look at the rest (growth in real State GDP) of the midwest which between 1997 and 2006 grew as follows:

As you can see, with exception of perhaps Wisconcin, Indiana has fared the best relative to its (similar) neighbors' economies. This jives with what most economists have said - that Indiana has had a much softer landing than many of the midwestern / great lakes states. The point is that, of course Indiana is trailing US trends - Indiana is still heavily domestic manufacturing (which have obviously been declining as foregin competition and service sectors are picking up). So, while the usefullness or lack thereof of the governor's policies may not be evident for years, Indiana is doing better to cut its losses than many of its neighbors.

Regardless, throwing political stones is not a solution, and does nothing indeed to point out any problem (if there even is one, in the long-run). Indiana will adjust - and the data shows that it is adjusting relatively well - albeit painfully.

Monday, June 4, 2007

Yesterday at the Democratic debate moderated (poorly) by CNN's Wolf Blitzer, two of the eight candidates (Chris Dodd, Mike Gravel) on stage verbally and publically anounced their support of carbon taxes to the world. I must say that I was a bit surprised by this - especially since the question posed by Wolf was something like, "What would you do to cut gas prices," and both candidates replied that they wouldn't necessarily cut them, and in fact, they support raising them.

But what's more interesting is the fact the Greg Mankiw, who usually jumps at the chance to 'announce' that a prominent figure supports carbon taxes, has made no mention of this yet on his blog. It's early, and maybe he will. Granted, Mankiw already posted a blog that Dodd supports a carbon tax, but I would've thought that such a public display of his ideology might prompt a response.

Friday, June 1, 2007

There was a recent study published that over 90% of Indianapolis residents want a Rapid Transit System, and they want it now. The majority (61%!!!) would be willing to pay higher gas taxes to help fund such a project, in addition to transit fares, tolls, etc.

I myself would support a modest STATE tax hike in addition other tax revenue sources - an modest increase in gas tax, while having a minimal effect of the environment, would nonetheless have some positive effect. Also, it may actually help serve to shift even more individuals from car to transit driving - thereby increasing indirectly the revenue from the transit useage (assuming full capacity would not have already been met).

Indeed a gas tax might initially at least be met with falling overall gas prices as the transit system may cut the demand. Funny how high gas prices spur the need for a transit system, and the transit system then changes the gas prices.

Rapid Transit would certainly reduce the congestion in Indianapolis and help poorer individuals who simply can't afford a lot of car travel, especially given Indianapolis's lack of population density. Not to mention, gas taxes are great revenue generators, so if the purpose is to help fund the expense of the RTS, that would be an ideal source of such funds.

So while i definately don't support federal gas tax hikes, and especially not on the order of what some economists want, I DO generally think gas taxes can be used by localities with specific needs - provided a large number of the population supports it (and is therefore politically feasable).

Garth Brazelton

About Me

I work for the Indiana Economic Development Corporation as the Director of Operations and Business Systems, and I teach macroeconomics at Indiana University (Indianapolis). Previously, I was an Economist at the US DOT in Cambridge, MA. This blog does not represent the opinions of any of these organizations.